I was pleasantly
surprised, in a conversation last week, to learn that of the many
concerns over the Central Bank of Nigeria’s (CBN) repairs to and
reforms of the banking sector, the nationality of the would-be buyers
of the banks rescued by the apex bank is the more troubling.
Transparency of the accounting treatments of the intervention funds did
not make the grade. According to the IMF, the original financial
intervention in 2009, by the CBN (N620 billion) in support of the 10
banks and its subsequent quasi-fiscal interventions in designated
sectors in support of a recovery in the market for credit, “pose on and
off-balance sheet risks…that should be undertaken, if at all, within
the context of the federal government budget”.
Related
reservations have been entertained over government’s attempts to pass
on some of its responsibilities for developing domestic infrastructure
on to the Nigerian Sovereign Investment Authority. Worries abound too
about how much of the Asset Management Company of Nigeria’s (AMCON)
purchase of the industry’s dodgy loan portfolios will feed into
monetary aggregates, and thence into domestic prices.
However, none of
these mattered to my interlocutors. Unease centred on protecting the
“national interest” from the beady gaze of “greedy” foreign investors.
According to the lead argument, top on the list of interests to be
protected are shareholders. And it mattered nought that a majority of
these shareholders had been complicit in the significant value erosion
that had taken place in the banks before the CBN’s August 2009 special
audit of the industry. Indeed, it is a long walk to health, from the
negative equity, and huge non-performing loan books that most troubled
banks’ balance sheets carried then, to the current valuations of their
shares on the stock market. Moreover, because of the CBN’s efforts,
these shareholders may yet come off better than they had reason to
expect a year ago, if external investor interest in their banks pushed
valuations up the more.
Shareholders gain
two things in addition. Unlike previously, no bank failed in the
current round of distress. Secondly, we all have learnt a lesson or two
about the importance of a strong governance suite for the management of
the companies in which we have financial interests. Admittedly, the
corporate governance sphere includes legitimate fears over minority
shareholder interests. As the banks’ recent experience indicates, this
has nothing to do with the complexion of the major shareholding
interests. In the absence of a strong regulator, there will always be
benefits from gaming the system, and a disposition to do so.
Incidentally, the
regulator in question in this instance is not the CBN. For as long as
these banks remain quoted companies, the operative environment that
either helps or impedes the progress of good governance will largely
remain the SEC and NSE’s call. So for shareholders, there are real
welfare gains to be had from investor interest in the banks. Foreign
investors have the added advantage of bringing in new money, new
management competences, and the latest technology.
But are they good
for staff? If they are not nepotistic, and choose to run efficient
shops, the short-term response is a resounding “no”. The choice before
your average executive is simple. Depending on the product and customer
service preferences, it would always pay to automate. Costs are driven
inexorably downward, and the space for human error is minimal. So if
the same value may be obtained from three staff, which was previously
delivered by five, stronger returns will accrue to that organisation
that can ask the two individuals who are surplus to requirement to go.
A major proviso here: the welfare effects depend on the relative costs
of labour and capital. This is good, because with cheap labour, the
incentive will always favour labour-intensive solutions. The only
drawback is that then, you are at the bottom of the production
ecosystem. That is how the private sector should run. Those who
bellyache over the fate of staff who lose their jobs as entrepreneurs
search for more efficient ways of doing business should turn instead to
the public sector. A bigger economy, including through best of breed
fiscal and monetary policies, and an education sector that ensures
constant retraining opportunities are baseline requirements if labour
is to be both mobile and productive.
